《The Nuts and Bolts》.docVIP

 The Nuts and Bolts of Revenue Administration Reform Jit B. S. Gill Lead Public Sector Management Specialist Europe and Central Asia Region The World Bank January 2003 The Nuts and Bolts of Revenue Administration Reform The object of this paper is to provide a brief overview of Revenue Administration reform. The paper discusses the rationale behind revenue administration reform and offers some key indicators that could be used to assess if reform is needed. It presents a methodology to diagnose the institutional and organizational deficiencies of revenue administration. Thereafter, the paper surveys revenue administration reforms carried out in recent years in LAC and ECA countries, to provide a sense of the scope and nature of likely interventions. Finally, it summarizes some of the major lessons from experience. I. WHY BOTHER ABOUT REVENUE ADMINISTRATION REFORM? There are various reasons why revenue administration reform may be needed in a country. First, while tax policy and tax laws create the potential for raising tax revenues, the actual amount of taxes flowing into the government Treasury, to a large extent, depends on the efficiency and effectiveness of the revenue administration. Weaknesses in revenue administration lead to inadequate tax collections. Financing of the resulting budget deficit through borrowing or monetary expansion can cause an unsustainable increase in public debt or inflation, respectively. In the alternative, revenue shortfalls shrink the budgetary resource envelope, thus, affecting the government’s ability to implement its policies and programs and provide public services. Unexpected dips in revenue collections also cause budget cuts that result in major inefficiencies in the public expenditure management. Second, the quality of revenue administration influences the investment climate and private sector development. Firms contemplating investment are not only concerned about the formal tax system, but also about how th